How to Hire a Tax Professional for Your Small Business

Hiring the right tax professional for your small business is important. Getting good tax help can translate into money for your business. Ideally, you should form a long-term relationship with a tax professional, so you have someone to call year-round.

Because this person is so vital to your business' bottom line and will help ease your stress throughout the year, take the time to learn about the different types of tax pros, how they can help, and how to choose one.

Types of Tax Advisers

Anyone can claim to be a tax expert. And people who prepare tax returns don't have to be licensed by the IRS. Make sure your tax preparer is one of the following:

Enrolled Agent (EA)

An EA is a full-time tax adviser and tax preparer licensed to practice before the IRS. But most EAs can't represent you in Tax Court. EAs have to either pass a difficult IRS exam or have at least five years of IRS work experience. They also have to participate in continuing education programs to keep their EA designations. Approximately 24,000 EAs are in the United States.

EAs are the least expensive of all tax professionals. For a cost-effective approach to handling a tax problem, consider an EA.

Tax Attorney

Some tax attorneys specialize in complex tax and estate planning, while others handle IRS dispute resolution. Some prepare complex tax returns. Look for a tax attorney with either a special tax law degree (LL.M.-Tax) or a certification as a tax law specialist from a state bar association. (If a lot of money is at stake, the IRS is accusing you of fraud, or you're headed to court, contact a tax attorney.)

Certified Public Accountant (CPA)

CPAs must be licensed and regulated by the state. They do sophisticated accounting and internal audit work and prepare tax returns. To become a CPA, an accountant must have a college degree and experience with a CPA firm and pass a rigorous examination. Some CPAs have a lot of IRS experience, but others don't deal with the IRS.

CPAs charge about the same amount as attorneys. As a general rule, CPAs aren't as aggressive as tax lawyers when facing the IRS.

How Tax Pros Can Help Your Business

If you find a good tax professional, you'll likely seek their assistance in many ways throughout the year.

• Information and advice. Your tax professional should be able to help you make key tax decisions and should provide you with basic information and advice.
• Record keeping. If you loathe record keeping, have your tax pro set up a record-keeping system tailored toyour business.
• Tax form preparation. Most businesses can benefit from having a professional prepare their tax forms. If you do it yourself, at least run your documents by a tax pro. The tax pro can point out tax deductions that you or your software missed, as well as highlight red flags that might get you into trouble.
• Advice in dealing with the IRS. If you are dealing with the IRS on your own, you can get advice and coaching from your tax pro.
• Representation when dealing with the IRS. An attorney, CPA, or enrolled agent can represent you before the IRS, so you don't have to deal with it at all. A good tax pro knows how to handle the IRS bureaucracy.

Finding the Right Tax Pro for Your Business

Here's how to find a tax professional.

Personal Referrals

Referrals are often the best source for finding a tax professional. Ask your friends, relatives, and acquaintances whose judgment you trust for the names of tax professionals who helped them. If their tax professionals can't help, ask for a referral.

Chain Tax Services

Not all tax professionals are created equal—not by a long shot. These folks might know how to prepare simple tax returns, but don't rely on them to help with an IRS problem.

Advertising

Various directories, online or in print, carry lists of tax professionals. Look under Accountants, Tax Return Preparers, Tax Consultants, and Attorneys-Tax. Some tax professionals offer a first consultation by phone or in their office at no charge.

Bear in mind, however, that professionals heavily advertising or giving away their time might be new to the game.

Professional Associations and Referral Panels

Search online. Most local bar associations will give out the names of tax attorneys who practice in the area. However, bar associations don't meaningfully screen the attorneys listed; those who are listed might not be experienced or competent.

To find an EA in your area, check the National Association of Enrolled Agents online directory. To find a CPA, try calling a local or state CPA society.

How to Pick a Tax Professional for Your Business

Take the following steps to pick a good tax professional.

• Interview candidates. Interview at least three people or firms. Find out if the tax pro has time to provide consistent help and if he has the experience your business needs.
• Test the tax pro's know-how. Ask questions (pulled from self-help books or online legal information) to test the tax pro's attitude towards the IRS and knowledge of small business tax issues. Find out if they have represented clients before the IRS, particularly in IRS audits.
• Ask yourself questions. As you go through the selection process, ask yourself if the tax pro gives you a feeling of confidence, seems knowledgeable, and appears to be able to go to bat for you in front of the IRS. Finally, ask yourself if you'd feel comfortable working with the tax pro.
• Take your time. Don't rush the process. The best time to look is in summer or fall, not the January to May tax season.

If you lose faith in your tax professional, find another one fast. But don't dismiss the first one until you get a second opinion on their work.

Discussing Fees

Make sure you understand the tax pro's costs and fees upfront. Some have a fixed fee for various tasks, such as bookkeeping, accounting, and tax form preparation. Others charge by the hour.

You might be able to negotiate the fees. If you catch the tax pro at a slow time or if they believe you'll be a long-term client, you might get a discounted rate. Either way, once you and the tax pro agree on the charges, get a written fee agreement. This will help if you have a tax bill dispute later.

Learn More

Whatever type of professional your business needs, make sure they have specific knowledge and experience in helping small businesses. It's even better if you can find someone who already knows a good deal about your type of business or industry.

To learn more about choosing a tax professional for your small business, as well as arming yourself with essential tax information, like learning the ins and outs of the tax code, developing the best tax plan for your small business, and creating comprehensive strategies to get back the most from the IRS, get Tax Savvy for Small Business, by Frederick W. Daily & Stephen Fishman (Nolo).